{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Ch8supp

# Ch8supp - Introduction CCA calculation JHT Kim 1/11...

This preview shows pages 1–5. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Introduction CCA calculation JHT Kim February 11, 2009 1/11 Introduction Measuring CF on an incremental basis Depreciation Motivation To evaluate a project, we compute PV: PV ( Proj ) = ∞ X t =1 CF j v t Determining CF t for each time t requires care. Some natural questions include: Can we use the estimated accounting incomes from the project as CF in the formula? Should we include the R&D cost that has already been spent for the project? What if the new project hurts the sale of existing product? 2/11 Introduction Measuring CF on an incremental basis Depreciation Incremental Cash Flows Matter 1 Cash flows matter, not accounting earnings (e.g., need to exclude depreciation) 2 Ignore sunk costs (i.e., if the cost has already been incurred, exclude it) 3 Incremental cash flows matter. 4 Opportunity costs matter. NPV > 0 should not guarantee automatic acceptance, particularly if you have to forgo another project with a higher NPV. 5 Side effects like erosion and synergy matter. If new product hurts existing product sales, we should recognize that fact 6 Taxes matter: we want incremental after-tax cash flows. 7 Inflation matters. 3/11 Introduction Measuring CF on an incremental basis Depreciation Estimating Cash Flows How to convert accounting numbers and to actual cash flows?...
View Full Document

{[ snackBarMessage ]}

### Page1 / 11

Ch8supp - Introduction CCA calculation JHT Kim 1/11...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online